Monday, July 28, 2014

A new analysis by CoreLogic shows that 4 million homes returned to positive equity in 2013, bringing the total number of mortgaged residential properties with equity to 42.7 million.

However, it is important to note that the CoreLogic analysis indicates that nearly 6.5 million homes, or 13.3 percent of all residential properties with a mortgage, were still in negative equity at the end of 2013.

In our local area, the Bay Area of San Francisco, it is difficult sometimes to keep some perspective on the local market, which has been on fire since the beginning of January 2012. This study by CoreLogic gives perspective at the national level: things have for sure improved enormously, but all is not over from the 2008-2009 crisis.

In the Bay Area, let's note that the inventory of homes (SFR + condos) for sale was about 1,700 after the first week of July, as compared to 1,872 a year ago. There are fewer homes for sale. It explains why property values have gone up so much in the past 12 months. Inventory was at 7,500 in May of 2008!
For the area that includes only Los Altos, Los Altos Hills, Mountain View, Palo Alto and Menlo Park, inventory stands right now at:150 homes total for sale (both houses and condominiums and townhomes, called PUD's), vs 184 last year at the same period.

We still have a very low inventory.

Dealing in the local market place day in and day out, I can however note here that, overall in the County, the activity seems to slow down: I have noticed fewer multiple offers in general, and a slower price increase in many areas. Except for Palo Alto and all areas with the best schools, I can sense that it is a slower activity now, during July. This slow down can be the normal cycle, which slows down during the summer vacations (see my last graph-blog on the subject), or it could be a more general trend tied to the market in general. We'll see in September!

Tuesday, July 22, 2014

Remodeling is at its highest level since the spring of 2004, according to the
National Association of Home Builders' Remodeling Market Index. One of the
reasons is that it has been so difficult to move up or move down: once you sell
your property, you are not sure you will be able to buy a replacement very
soon.As a consequence, people remodel
their house instead.How much will you
get back from these expenses, when you sell?

In general, home sellers cannot expect to recoup all their
remodeling costs when they sell their house. From the upgrades, one can expect
the average portion of costs being recouped at 66.1%

This is a question that clients ask me all the time, and one of
the best sources of information on the subject is the web site showing the “Cost Vs. Value”
report study.It shows, depending on the
area in the US, how much each project statistically gives back at the time of
sale.

Those projects that pay off the most are, according to the article from Kelli B. Grant of
CNBC:

-Entry door replacement (steel):96.6% recouped

-Minor kitchen remodel:82.7%recouped.

-Window replacement (wood):79.3%

Why would contractors who “flip” houses make money then, you might
ask?I believe it is because they start
from a house that does not show well, and therefore is going to sell at a
discount, and they have the cost-efficient means to improve on the house,
emphasizing those projects that show off the most for the best value.Examples of such improvements would be, as I
indicate to my clients when preparing for a sale:

-Light fixtures,

-Painting,

-Retiling a shower enclosure,

-Changing counter tops (but not necessarily all the cabinets, where
there is a lot more involved),

-Floor refinishing,

-Deep cleaning,

-Staging.

All these projects have a fairly small, finite cost, while
improving immensely the look of the property to be sold.

Moreover, I believe that there are some areas like the Bay Area
where buyers are willing to pay top dollars for a remodel that has been done
already.Is it because people here are
too busy to undergo or direct a home remodel? Or they do not have the
patience?In any case, it has been my
experience that remodeling jobs in this area of the San Francisco Bay returns
more money than shown on the statistics of the cost vs value report.

Tuesday, July 8, 2014

I recently read an article from NewsGeni.us that I found
quite interesting, dealing with real estate investing.

Without repeating the whole article here I thought I would
comment on some of their points:

Their advice is:

Focus on promising
areas - the clientele in the SF Bay Area has been well served by believing
in the local area in the past 30 and 40 years.
5 years ago though a lot of people got scared and some sold, or did not
buy when they could have.For those who
bought when no one believed in it, I say “bravo”!However the Bay Area is just one choice,
mostly based on price appreciation, not return.Indeed until very recently, the return on investment was not great -
purchase price very high, rental fairly low.

I personally chose another route: an area with very little
appreciation, but with traditionally good return .With the help of an investor mentor (thank
you Louis!), my family invested in real estate in Texas.There, the gross return was more like 10 to
11% per year, as opposed to ~3% in the Bay Area at the time.The area was promising because of the
job market, which had been very consistent, and strong.Since it continued to be strong, the rental
market stayed strong.

Never spend more than
you can afford - unless you buy cash, mortgages start to add up when you
purchase rental properties.You have to
count on a few set-backs, like damage due to weather, vacancies, repairs tied
to finding new tenants, etc…if you do
not have reserves, it can start becoming a stretch.Plan on a certain amount of unknowns, and I
would say, plan generally on costs being higher than they should be.(like insurance costs….).

All of the advice is well taken in this article called “When is the right time for investing in property?” . I would add another item: choose a good management company (if
you are going to invest away from where you live, or if you do not plan on
managing yourself).This is essential to
staying out of trouble, so-to-speak.That company should be used to missed payments and how to deal with
them, and they should be well organized and standardized in their
procedures.Getting referrals or
testimonials is very important in my opinion.

If you are thinking about investing in real estate, share
your thoughts with me - I’d love to help you out with what I learned so far on the matter.